Synthesis/Regeneration 34 &nbsp&nbsp(Spring 2004)

Thinking Economically

Protecting the Environment in a Participatory Economy

by Robin Hahnel

Over the course of several decades, Michael Albert and I came to the conclusion that the vision of a desirable economy shared by many council communists, syndicalists, anarchists and guild socialists was essentially sound, but, unfortunately, these economic visionaries had failed to provide a coherent model explaining precisely how their alternative to capitalism could work.

In two books published in 1991—The Political Economy of Participatory Economics, and Looking Forward: Participatory Economics for the Twenty First Century —we set out to rectify intellectual weaknesses in the case for participatory planning by spelling out precisely how worker and consumer councils and federations could coordinate their joint endeavors themselves—consciously, democratically, equitably, and efficiently. Our model of a participatory economy quickly attracted interest among left greens because it rejected the profit motive, market competition, central planning, consumerism and hierarchical decision making, and promised to take into account external effects that go ignored in market economies. However, in neither book did we explain precisely how a participatory economy would protect the environment. The purpose of this article is to begin to redress this deficiency.

The model of a participatory economy was designed to promote: (a) economic justice, or equity, defined as economic reward commensurate with sacrifice, or effort; (b) economic democracy, or self-management, defined as decision making power in proportion to the degree one is affected by a decision; and (c) solidarity, defined as concern for the well being of others—all to be achieved without sacrificing economic efficiency while promoting a diversity of economic life styles as well. The major institutions used to achieve these goals are:

(1) democratic councils of workers and consumers,

(2) jobs balanced for empowerment and desirability,

(3) remuneration according to effort as judged by one’s work mates, and

(4) a participatory planning procedure in which councils and federations of workers and consumers propose and revise their own activities under rules designed to guarantee outcomes that are both efficient and equitable.

While I leave readers to consult other writings [1] for a comprehensive description and defense of participatory economics, I must provide an abbreviated exposition of participatory planning for readers to understand specific features proposed below to protect the environment.

The participants in the planning procedure are the worker councils and federations, the consumer councils and federations, and an Iteration Facilitation Board (IFB).

The participants in the planning procedure are the worker councils and federations, the consumer councils and federations, and an Iteration Facilitation Board (IFB). Conceptually, the planning procedure is quite simple.

(1) The IFB announces what we call an “indicative price” for each final good and service, each capital good, each natural resource, and each category of labor.

(2) Consumer councils and federations respond with consumption proposals taking the indicative prices of final goods and services as estimates of the social cost of providing them. Worker councils and federations respond with production proposals listing the outputs they propose to make and the inputs they need to make them, again taking the indicative prices as estimates of the social benefits of outputs and social costs of inputs.

(3) The IFB then calculates the excess demand or supply for each final good and service, each capital good, each natural resource and each category of labor. The IFB then adjusts the indicative price for an item up or down in light of the excess demand or supply.

(4) Using the new indicative prices, consumer and worker councils and federations revise and resubmit their proposals.

Individual worker and consumer councils must continue to revise their proposals until they submit one that is accepted by the other councils. The planning process continues until there are no longer excess demands for any final goods or services, any capital goods, any natural resources, or any categories of labor—in other words, until a feasible plan is reached.

…in participatory planning worker and consumer councils propose and revise their own activities in a process that reveals the social costs and benefits of their proposals…

The IFB has no discretionary power to determine prices, much less to dictate what workers or consumers can do. The IFB bears no resemblance to GOSPLAN in the former Soviet Union which was a central planning bureaucracy that did have tremendous power over who would produce what and how they would go about it. But in participatory planning worker and consumer councils propose and revise their own activities in a process that reveals the social costs and benefits of their proposals that both they, and others, can take into account. Not only does each worker and consumer council make its own initial proposal, they are entirely responsible for revising their own proposals as they see fit. Other worker and consumer councils can vote to disapprove of proposals they find unfair or inefficient, but revisions are entirely up to individual worker and consumer councils themselves. This aspect of the participatory planning procedure distinguishes it from all other planning models that I know, and is instrumental in providing workers and consumers with the opportunity for self-management.

The planning process whittles overly optimistic, unfeasible proposals down to a feasible plan in two ways: Consumers requesting more than their effort ratings warrant are forced to either reduce their requests or shift their requests to less socially costly items if they expect to win the approval of other consumer councils who have no reason to approve consumption requests whose social costs are not justified by the sacrifices of those making them. Similarly, worker councils are forced to either increase their efforts or shift toward producing a more desirable mix of outputs or using a less socially costly mix of inputs to win approval for their proposals. By multiplying outputs by their indicative prices and dividing by inputs multiplied by their indicative prices it is possible to calculate the ratio of social benefits to social costs of any worker council proposal.

Worker councils whose proposals have lower than average social benefit to social cost ratios will be forced to increase either their efforts or their efficiency to win approval from other worker councils. Efficiency is promoted as consumers and workers attempt to shift their proposals and avoid reductions in consumption or increases in work effort. Equity is promoted when further shifting is no longer possible and approval of fellow consumers and workers can only be achieved through reducing consumption to be commensurate with sacrifices, and by raising work effort to the level of others. Each new round of revised proposals moves the overall plan closer to feasibility, and moves the indicative prices closer to true social opportunity costs. No participant in the planning procedure enjoys any advantage over any other and the procedure generates equity and efficiency simultaneously.

A reasonable goal

I do not believe environmentalists should ever be satisfied that any proposal for how to conduct human economic activities will protect the environment adequately. Even before we developed our present awesome technological powers, humans were already a bull in the ecological china closet for whom the normal ecological constraints on over hunting and grazing were largely absent. As we enter the third millennium AD, none should doubt that the six billion humans on earth have the technological capability of damaging the biosphere irreparably in a number of ways. But environmentalists must be satisfied with something less than zero pollution and no depletion of non-renewable resources. Zero pollution often means not producing and consuming goods and services whose benefits far outweigh their costs. Never tapping non-renewable resources is a debilitating constraint when it proves possible to develop substitutes before a non-renewable resource runs out. Unless we plan to vacate planet earth, zero pollution and no resource depletion are impossible.

… zero pollution and no resource depletion are impossible.

But fortunately, zero pollution and no resource depletion are also unnecessary. An environmentally sustainable economy does not mean going back to scattered clans of hunter gatherers—who hunted most large mammal species to extinction in short order wherever they spread in any case! Humans will affect the environment—but we must learn to do so in ways that preserve a biosphere capable of sustaining human and non-human life of the same quality that we presently enjoy indefinitely.

…any pollutants the worker council proposes to emit are counted as part of the social cost of their proposal…

Moreover, we should plan the transition with both efficiency and inter-generational equity in mind. If the transition is too slow, we risk environmental collapse and consign future generations to oblivion. Even if collapse is avoided, if the transition is too slow, it will unfairly advantage the present generation over future generations, and inefficiently reject opportunities to achieve future environmental benefits that exceed present social costs. But besides being impractical, attempting an immediate transition imposes unduly high costs on the present generation and compels us to adopt policies whose social costs exceed their social benefits. So once capitalism has been replaced, we will need to calibrate judicious but non-zero levels of pollution and resource depletion over long periods of time.

Protecting the environment in annual plans

How does participatory planning internalize the negative external effects of pollution? In each iteration in the annual planning procedure there is an indicative price for every pollutant in every relevant region representing the current estimate of the damage done by releasing a unit of that pollutant into the region. What is a pollutant and what is not is decided by federations representing those who live in a region, who are advised by scientists employed in R&D operations run by the residents’ federations. For example, if only the residents of ward 2 of Washington, DC feel they are adversely affected by a pollutant released in ward 2, then ward 2 is the relevant region. But if the federation representing residents of all wards of Washington, DC decides that residents of all wards are affected by a pollutant released in ward 2, then the entire city of Washington is the relevant region. Whereas, if the federation representing all who live in the Chesapeake Bay watershed feels that all who live in the watershed are adversely impacted by a pollutant released in ward 2, then the relevant region includes the District of Columbia, Maryland, and parts of Virginia, Delaware and Pennsylvania. [2]

If a worker council located in an affected region proposes to emit x units of a particular pollutant, the council is “charged” the indicative price for that pollutant in that region times x, just as they are charged y times the indicative price of a ton of steel if they propose to use y tons of steel as inputs in their production process, and just as they are charged z times the indicative price of an hour of welding labor if they propose to use z hours of welding labor. In other words, any pollutants the worker council proposes to emit are counted as part of the social cost of their proposal, just as the cost of making the steel inputs and the opportunity cost of the welding labor they propose to use are counted as part of the social cost of their proposal—all to be weighed against the social benefits of the outputs they propose to make.

The consumer federation for the relevant region looks at the indicative price for a unit of every pollutant that impacts the region as an indication of the social benefit from associated production of goods and services and decides how many units of each it wishes to allow to be emitted. The federation can decide they do not wish to permit any units of a pollutant to be emitted—in which case no worker council operating in the region will be allowed to emit any units of that pollutant. But, if the federation decides to allow X units of a pollutant to be emitted in the region, then the regional federation is “credited” with X times the indicative price for that pollutant.

This procedure allows people in different regions to choose different tradeoffs between less pollution and more consumption.

What does it mean for a consumer federation to be “credited?” It means the federation will be permitted to buy more public goods for its members to consume than would otherwise be possible given the effort ratings of its members. Or, it means the members of the federation will be able to consume more individually than their effort ratings would otherwise warrant. In other words, residents of a region have a right not to be polluted if they so choose. On the other hand, if they choose to permit a certain amount of pollution to occur in their region, they are compensated for the damage they choose to endure.

This procedure allows people in different regions to choose different tradeoffs between less pollution and more consumption. Why? Citizens in different communities might have different opinions about how damaging pollution is or beneficial consumption is. Or, even if all effects could be estimated with certainty, not all people feel the same about how much they value environmental preservation versus consumption, and citizens in different regions may feel differently on average as well.

Does this create the kind of “race to the bottom effect” environmentalists point out that local, as opposed to national, standards do today? First of all, standards are set locally only for pollutants that affect a local region. For pollutants that affect wider regions, the standards are set by wider regions. Second, it is important to remember that in a participatory economy there are no significant differences in income and wealth between communities. For this reason, I do not believe permitting communities to choose their own environmental standards for local pollutants risks creating a “race to the bottom effect” between local environmental standards as it certainly does in a society where poor communities are unfairly tempted to permit greater environmental destruction to attract jobs and income while only wealthy communities can afford the luxury of strict pollution controls.

This procedure in the annual planning process protects the environment sufficiently only if present residents in the region of impact are the only ones who suffer adverse consequences. While this is the case for some pollutants, it is often the case that future generations bear a great deal of the cost of pollution today. The interests of future generations must be protected in the long-run participatory planning process and by an active environmental movement, as explained below.

The annual participatory planning process provides much improvement over market systems. Under traditional assumptions the above procedure will: (1) reduce pollution to “efficient” levels, (2) satisfy the “polluter pays principle,” (3) compensate the actual victims of pollution for the damage they suffer, and (4) induce worker and consumer councils and federations to truthfully reveal the benefits and costs of pollution. In other words, the procedure is what economists call “incentive compatible.”

The fact that a participatory economy can treat pollution and environmental preservation in an “incentive compatible” way is crucial. When producers or consumers have incentives to ignore damaging effects of their choices, it is not incentive compatible. And when polluters and pollution victims lack incentives to reveal the true costs of pollution to victims, or the true benefits of pollution to consumers of the products produced jointly with the pollution, it is not incentive compatible. But in a participatory economy, since producers are charged for harmful emissions, the damage from pollution is included in the cost of a worker council proposal—giving producers just as much incentive to reduce pollution as any other cost of production. And since the indicative prices consumers are charged for goods in participatory planning include the costs of pollution associated with their consumption, there is just as much incentive for consumers to reduce consumption of goods that cause pollution as there is for them to reduce consumption of goods that require scarce productive resources or unpleasant labor to produce.

… it is often the case that future generations bear a great deal of the cost of pollution today.

But does the procedure yield an “efficient” indicative price for pollutants, i.e. a price that permits pollution as long as the benefits outweigh the costs, but prevents pollution whenever the costs outweigh the benefits? In most cases it is reasonable to assume that as emission levels increase the costs to victims of additional pollution rise and the benefits to producers and consumers of additional pollution fall. In which case the efficient level of pollution is the level at which the cost of the last unit emitted is equal to the benefit from the last unit emitted. What will happen if the IFB quotes a price for a pollutant less than the “efficient” price, i.e. less than the price at which the last unit of emissions causes damage equal to its benefits? In this case the pollution victims, represented by their federation, will not find it in their interest to permit as much pollution as polluters would like, i.e. there will be excess demand for permission to pollute—and the IFB will increase the indicative price for the pollutant in the next round of planning. If the IFB quotes a price higher than the efficient price, the federation representing pollution victims will offer to permit more pollution than polluters will ask to emit—and the IFB will decrease the indicative price in the next round.

There is no incentive for pollution victims to pretend they are damaged either more or less than they really are, or for polluters to pretend they benefit more or less than they really do from being allowed to pollute, because each would fare worse by responding untruthfully than by responding truthfully to the indicative prices quoted by the IFB. Consequently, when the IFB adjusts the indicative prices for pollutants until requests to pollute equal permission to pollute, the efficient level of pollution is reached.

…the efficient level of pollution is the level at which the cost of the last unit emitted is equal to the benefit from the last unit emitted.

Uncorrected markets accomplish none of the four goals above. Markets corrected by pollution taxes only lead to the efficient amount of pollution and satisfy the polluter pays principle if the taxes are set equal to the magnitude of the damage victims suffer. But because markets are not incentive compatible for polluters and pollution victims, markets provide no reliable way to estimate the magnitudes of efficient taxes for pollutants. Ambiguity over who has the property right, polluters or pollution victims, free rider problems among multiple victims, and the transaction costs of forming and maintaining an effective coalition of pollution victims, each of whom is affected to a small but unequal degree, all combine to render market systems incapable of eliciting accurate information from pollution victims about the damages they suffer, or acting upon that information even if it were known.

A participatory economy, on the other hand, awards victims an incontestable right not to be polluted, and arms them with a federation that includes every victim to express and represent their interests. Moreover, the context of participatory planning makes it in the best interests of the federation’s members for their federation to truthfully express the magnitude of the damage pollution does to its collective victims, and to permit emissions so long as the social benefits outweigh the damage to victims. [3]

The crucial difference between participatory planning and market economies in this regard is that the participatory planning procedure generates quantitative estimates of the costs and benefits of pollution while markets do not. Consequently, even “good faith” efforts to internalize the cost of pollution through taxes or permits in market economies are “flying blind,” and opportunities for “bad faith” intervention are ever present. Estimates from “contingent valuation surveys” and “hedonic regression studies” are less accurate than the indicative prices for pollutants that are generated automatically by the participatory planning procedure. Moreover, because everyone knows estimates based on surveys and studies are unreliable, it is possible for interested parties in market economies to challenge estimates they find inconvenient. Interested parties frequently finance alternative surveys and studies that arrive at predictably different conclusions regarding the damage from pollution and benefits from environmental preservation.

Since, unlike participatory planning, market systems generate no “objective” estimates that could serve as arbiters, debates over the size of pollution taxes in market economies invariably devolve into a cacophony of “he says, she says.” The participatory planning procedure described above, on the other hand, provides credible estimates of the damage done by pollution because the above procedure makes it in the interest of pollution victims to reveal the extent of the damage they suffer truthfully as a byproduct of simply participating in the planning procedure.

Protecting the environment in long-run plans

The fact that a participatory economy can treat pollution and environmental preservation in an “incentive compatible” way is crucial to achieving efficient levels of pollution, i.e. pollution only when the social benefits outweigh the social costs. And the fact that it compensates the victims of pollution and forces those who benefit to pay for the damage they cause others is another major advantage over market economies. But while participatory planning may “settle accounts” efficiently and equitably concerning the environment for all those taking part in the various councils and federations, what protects the interests of future generations who cannot speak for themselves? How can we avoid intergenerational inequities and inefficiencies while preserving economic democracy when a great deal of the adverse effects of environmental deterioration is borne by people who cannot be part of the democratic decision making process today?

… the participatory planning procedure generates quantitative estimates of the costs and benefits of pollution while markets do not.

The interests of future generations—which include the future state of the natural environment—must always be protected (or ignored) by the present generation. This is true whether it is a political or economic elite in the present generation that weighs the interests of the present generation against those of future generations, or a democratic decision making process involving all members of the present generation that weighs the competing interests of different generations. In a participatory economy intergenerational efficiency and equity regarding the environment must be achieved in the same way intergenerational efficiency and equity are achieved in all other regards—by means of restraints the present generation places on itself in its democratic deliberations concerning the long-run plan. In a participatory economy the same rules and procedures are used to determine the long-run plan as are used for the annual plan. Federations rather than individual worker and consumer councils play a larger role in long-run planning, as do R&D facilities attached to federations. But federations of workers propose and revise investments they would like to make in their own industries, together with federations of consumers who propose and revise what they would like to be able to consume more and less of in the future, in a process that settles on particular investment priorities and time tables. Each annual plan is then hammered out within constraints imposed by choices already agreed to in the long-run planning process.

…a participatory economy … compensates the victims of pollution and forces those who benefit to pay for the damage they cause…

If the long-run plan calls for more overall investment, this decreases the amount of consumption available in this year’s annual plan. If the long-run plan calls for reducing the automobile fleet and expanding rail and bus service in the future, this reduces the amount of investment and productive resources this year’s annual plan are permitted to allocate to worker councils making automobiles, and increases the amount of investment and resources to be allocated to worker councils making trains. And if the long-run plan calls for a 25% reduction in carbon emissions over five years, the national consumer federation must reduce the amount of carbon emissions it permits by 5% in each of the next five annual plans. Major changes in the energy, transportation, and housing sectors, as well as conversions from polluting to “green” technologies and products, are all determined by the long-run planning process. When consumer federations demand more green space and improvements in air and water quality for the future during this process, investment priorities in energy, transportation and housing are affected, and time tables for phasing in “green” technologies and products are settled on.

Will the present generation consume less so more can be invested and future generations will be able to consume more?

Sometimes when the present generation draws up the long-run plan, they are making choices that affect only the future generation. Will people in the future transport themselves in cars or trains? But often when the present generation agrees on the long-run plan, they make choices that favor one generation over another. Will the present generation consume less so more can be invested and future generations will be able to consume more? Will the present generation consume less so carbon emissions can be reduced more and future generations will suffer less from climate change? Will the present generation consume less so “green” technologies and products can be phased in more quickly and future generations can enjoy increased environmental amenities sooner rather than later?

I can think of no way to guarantee that members of the present generation will take the interests of future generations sufficiently to heart, or, for that matter, choose wisely for them even when there is no intergenerational conflict of interest. Whether or not the present generation decides on a long-run plan democratically or autocratically, there is no way to guarantee they will not make mistakes that damage future generations: Maybe replacing cars with trains for our descendants is a mistake because solar powered cars would be as environmentally friendly as trains and more convenient. Nor is there any way to make sure the present generation will not behave like Louis XV and simply decide, “après moi, le déluge.”

I can hope that people who practice economic justice diligently among themselves, as a participatory economy requires, will practice it on behalf of their children, grandchildren, and great grandchildren as well. I can hope that people used to permitting pollution only when the benefits outweigh the costs will apply the same principle in their long-run planning and include the costs to those they know will follow them. And I can hope that when people have choices posed in ways that make perfectly clear when they would be favoring themselves unfairly at the expense of their descendants, they will be too ashamed to do so. Long-run participatory planning is designed to make issues of intergenerational equity and efficiency as clear as possible. But even so, there is no guarantee that future generations and the environment might not be slighted. Some will have to speak up in the long-run participatory planning process when they think others in their generation are unmindful of future generations. And some will have to speak up during long-run planning when they think others are neglectful of the future of the environment.

Other features that protect the environment

Besides specific features of the annual and long-run planning processes discussed above, there are other features of a participatory economy that make it more likely people will use the natural environment judiciously. (1) An egalitarian distribution of wealth and income means nobody will be so poor and desperate that they cannot afford to prioritize environmental preservation over material consumption. There will be no destitute colonists cutting down and burning valuable rain forests because they have no other way to stay alive. There will be no poverty stricken local communities who acquiesce to host unsafe toxic waste dumps because they are desperate for additional income. An egalitarian distribution of income and wealth also means nobody will be so rich they can buy private environmental amenities while lobbying and voting to permit the public environment to deteriorate. (2) A system that minimizes the use of material incentives and emphasizes rewards for social serviceability greatly diminishes the environmentally destructive effects of conspicuous consumption. (3) An allocative system that provides productive resources to workers as long as the social benefits of their work exceed the social costs—including the environmental costs and the cost of lost leisure—eliminates the competitive rat race for producers to accumulate and grow despite the environmental consequences, and despite the fact that after a certain point our extra consumption is not worth the leisure we sacrifice.

In other words, unlike capitalist economies and communist economies ruled by leaders who chose to compete with them in a “growth race,” there is no bias toward injudicious growth in a participatory economy. In two books, Overworked American: The Unexpected Decline of Leisure (Basic Books, 1992), and The Overspent American: Why We Want What We Don’t Need (Basic Books, 1998), Juliet Schor dissected the irrationality of over work and over consumption in America, tracing its causes to incentives embedded in the economic system. None of the perverse incentives she documents would be present in a participatory economy.

However, in the end there is nothing a democratic economy can do to prevent environmental abuse if people make unwise or selfish choices. This can happen because people are simply unaware of the detrimental environmental consequences of their choices, or underestimate their severity. This can occur because the present generation is selfish and cares more about itself than about future generations. Or, if one believes that other species have rights or interests that deserve to be taken into account, it can be because humans refuse to do so. An active environmental movement educating and agitating for its causes will be necessary in a participatory economy, and the health of the biosphere will depend on this movement’s wisdom, strength and persuasive powers.

Conclusion

I believe the relevant question to ask regarding how the environment will fare under any economic system is: Does the system contain incentives for those who make decisions to abuse the environment, or incentives for decision makers to protect the environment and use it wisely? Unlike capitalism and communism, each of which contain powerful incentives for decision makers to ignore adverse affects on the environment—and unlike market socialism, which is little better suited to accounting for environmental externalities, avoiding conspicuous consumption, and avoiding injudicious growth—in a participatory economy it is in the individual interest of decision makers to treat the environment wisely.

There is no bias favoring growth of output over growth of leisure. Status cannot be achieved through conspicuous consumption. There are no perverse incentives that make it in the interest of producers or consumers to over pollute because of neglected externalities. Instead, those who benefit from environmental preservation have the power and means necessary to protect their interests during the annual planning process. Long-term plans place constraints on annual plans in ways that balance the interests of the present and future generations. The interests of future generations—which depend on environmental preservation—are given every opportunity to receive their due in the long-run, participatory planning process.

A participatory economy that includes the procedures described above provides no guarantee that people will treat the environment wisely, which is to say it does not make the environmental movement obsolete. A participatory economy with these features merely eliminates perverse incentives that create biases against environmental preservation and restoration so people can weigh these goals along with other goals on an even playing field—democratically and fairly.

Endnotes

1. Besides The Political Economy of Participatory Economics (Princeton University Press, 1991) and Looking Forward: Participatory Economics for the Twenty First Century (South End Press, 1991), see “In Defense of Participatory Economics,” Science & Society 66(1), Spring 2002, all by Michael Albert and Robin Hahnel. [See also: Parecon: Life After Capitalism by Michael Albert (Verso, 2003) -js]

2. If necessary, local jurisdictions could challenge larger jurisdictions whose claim to be affected they believe to be disingenuous at hearings where judges come from other jurisdictions.

3. Trying to correct markets with tradable pollution permits runs into the same problem. Because markets are not incentive compatible for polluters and pollution victims, markets fail to generate the information necessary to know how many permits should be issued. When too many are issued we get too much pollution. If too few were issued, we would get too little pollution. Besides the problem that there is no way to know how many permits should be issued, when permits are distributed according to the grandfather system, and when permit markets fail to equilibrate perfectly, permit programs are even less equitable and less efficient than equivalent tax programs.

Robin Hahnel is a member of the Southern Maryland Greens and Maryland State Green Party.
A longer version of this article is available here at s/r: PEenvSR.doc [MSWord 93kb 17pp]